What is Contract Management? (and why should you automate it)

The ability to negotiate and execute contracts is crucial to the success of any business, no matter the size or industry. Contracts don't simply allow companies to complete tasks on time and on budget; a successful contract is integral to business relationship building, accurate planning and problem-solving, and the long-term growth of a company. The importance of good contract management can never be overstated.

What is contract management?

While contract management is not the same task as contract administration, in many companies these dual roles are fulfilled by the same staff or department, which can occasionally lead to confusion about the terms. Contract administration is the planning and implementing of contracts. It usually involves sourcing of vendors or partners, negotiating contract terms, and arranging the contract. So what is Contract Management then, you might ask? Contract management is the process of overseeing a contract once it has taken effect, making sure that both parties abide by the terms until the conclusion of the agreement. The Contract Management team is usually responsible for:

Ensuring that the terms and conditions of the contract are adhered to

Ensuring that the contractual obligations are completed satisfactorily

Ensuring that any necessary changes are correctly documented and managed

Post-contract analysis and reporting

The Contract Management team is deeply familiar with the contract terms, and is in regular contact with the contracted parties. Therefore, they are often in the best position to be aware of any potential changes to terms, the person most responsible for successful relationship building with contract partners, and the person in the best position to determine whether the outcome was successful.

No matter how large or small the company, contract administration and contract management personnel must work closely together and remain in constant communication, although each has a different role and skillset.

What is Contract Lifecycle Management?

Contract Lifecycle Management (CLM) is a set of tools and processes that streamline contract management and reduce risk and exposure. CLM evaluates, centralizes, and standardizes contract procedures, including:

Contract drafting

Internal sign-offs

Counterparty negotiation

Contract execution

Post-execution analysis

Benefits of Automation and CLM

More and more businesses are adopting CLM, because it allows their contract management personnel to:

Centralize contracts. Many businesses do not have centralized storage of their contracts, or clear ways of labeling and classifying contracts. Keeping contracts easily identified and located by relevant stakeholders saves time and boosts efficiency, and can often help to mitigate risk.

Structure contract workflows and processes. Clearly structuring and documenting contract processes, including authoring, approvals, and validation, not only helps on-board new employees and simplify training and compliance, but it, too, helps to mitigate risk and reduce exposure.

Track contracts. Tracking contracts gives all stakeholders visibility into the contract process and the status of any individual contract at any given time.

Create templates and with approved content. Instead of manually assembling contracts, CLM allows the contract management team to create contracts using approved content and templates to speed contract administration. Using templates ensures that everyone is using the most up-to-date, authorized content in every contract.

Create workflow rules. Once your workflow is documented and contracts are standardized, it's easy to create rules that speed approvals, or flag exceptions for further review.

Streamline internal approvals. All too often, contracts get hung up in the approval process. With improved tracking, and implementing rules and templates, routine approvals can be handled quickly and efficiently.

Streamline negotiation. Old-fashioned negotiation processes can take forever, with each party making amendments and emailing document attachments back and forth. Version control becomes a problem, and it can be easy to lose sight of clauses that need further review vs. terms that can be substituted without approval. CLM software can help the contract management department make negotiation simpler, manage changes, and offer pre-approved substitute terms to help both parties reach agreement more quickly.

Streamline validation and signatures. Of course, CLM tools ensure that final contracts are properly routed, approved, and stored.

Track changes. all contract management teams know that sometimes contract terms need to be amended. Once again, a library of standard substitutions, rules-based approval and review systems, and version tracking help to keep this process moving smoothly and resolved quickly.

Intelligent analysis. One of the key benefits of CLM is that it gives you and your stakeholders greater insight into your contracting process. With analysis and review, you can determine where your own workflows may need improvement, document challenges, and build upon successes.

Intelligent search. Once all your contracts are stored in a CLM system, contract management personnel can easily search and retrieve contracts. If you want to identify all contracts that are up for review, all contracts that use a certain term or clause, or all your obligations in a family of contracts, you can quickly find what you are looking for.

Ultimately, these advantages of an automated Contract Lifecycle Management for contract management teams can be summarized as:

Reduced risk exposure. All these CLM benefits and capabilities add up to lowered risk. When contract authorship, approvals, and validation are streamlined, centralized, and searchable, and contracts are created from approved templates and term libraries, companies benefit from reduced legal or financial risk.

Increased efficiency. The contract administration process can be lengthy, repetitive, and unnecessarily expensive. Automating contract administration with CLM saves time and money by streamlining processes and removing redundancies.

Contract management is a difficult job, and not for everyone. Contract management is not simply an administrative role; it is strategic, and essential for moving companies toward their business goals. The Contract Management team must be both organized and intuitive, as they monitor contracts toward successful completion, while building productive relationships, and performing smart analysis. Good contract management personnel work hard for the success of both parties in the contract, and smart CLM and contract automation can support them by saving them time, creating greater clarity and consistency, and helping them stay organized and effective. At ContractRoom, our goal is to make sure that every contract management team and contract manager has the tools they need to see every contract through to a successful outcome, no matter what their needs are. To see how ContractRoom can help you automate your contract management, contact us today to schedule a demo.

About the author

Charlene Dickey is ContractRoom’s VP of Enterprise Sales, joining the company from Apttus. Charlene brings special expertise in Contract Lifecycle Management (CLM) and more than 25 years of experience guiding enterprise customers to transformative technology solutions.